cryptocurrency – coindesk.com

Central banks might benefit from issuing cryptographic versions of fiat currencies, but the benefits would vary depending on whether theydid so in an advanced or developing economy.

At least that's according toBen Fung from the Central Bank of Canada and Walter Engert from the Office of the Superintendent of Financial Institutions, both of whompublished a paperthis week discussing the pros and cons for central banks issuing cryptocurrencies.

Notably, the paper ends on the question of whether it's worth it for such institutions to offer cash or central bank digital currency (CBDC), should such demand drop deeply enough, though it ties the query to the idea this would need to come at the expense of cash use.

It reads:

"Is it sufficient for a central bank to supply only reserves to qualified financial institutions? Put differently, is a 'cashless society' a sound outcome?"

The paper goes on to explore six different supposed benefits to a central bank for issuing a digital currency, but largely dismisses all but three: payments for consumers, financial inclusion and stability.

For consumer payments, the authors write that a "CBDC would facilitate transactions that are currently foregone because of frictions that inhibit some types of transactions." In particular, it would reduce friction for online payments and entice smaller merchants to offer services over the internet. In some economies, they also see benefits in reducing costs for retail payments to consumers.

The authors argue that financial inclusion would only really benefit in developing economies, though it cites several other existing solutions around the world (such as Africa's M-PESA system) that seem to be closing the gaps just as well as digital currency could.

"Financial inclusion does not provide a compelling motivation for CBDC in most advanced economies, including Canada," they write.

Lastly, the paper gives mixed results for improved financial stability.

On the one hand, "the financial systems in Canada and other countries feature highly levered banks conducting liquidity and maturity transformation and operating at the core of the payment system," the authors write."It is well known that under some conditions this set-up can be unstable, and in severe cases the stock of inside money can contract, with adverse negative externalities for the economy."

Digital money would give consumers a largely risk-free way to store value without exposure to that risk. On the other hand, the ease of leaving bank deposits for a fiat crypto could accelerate financial turmoil.

The paper represents the views of its writers and does not necessarily reflect that of the Central Bank of Canada.

Canadian money via Shutterstock.

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

See the article here:
cryptocurrency - coindesk.com

Related Posts
This entry was posted in $1$s. Bookmark the permalink.